American Opportunity Credit

American Opportunity Credit

We all dream of college education and many of us make it happen. There are many parents who help their kids achieve this dream by paying their college tuition and other related expenses. While we all know that college tuition is expensive in the United States, there are certain programs provided by the government to help these parents enable their kids to go to college. American Opportunity Credit is one of these programs. It enables parents & students to reduce the cost of attending college by deducting a portion of money they spend on college tuition & related expenses from their taxes. The best part of this credit is that you actually deduct this money from the taxes you owe, rather than reducing your taxable income.

However, there are certain rules on who can claim this credit and what is the maximum value of this deduction. So let's learn more about it.

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Rules:

1. Parents and students qualify for this tax credit.

2. This credit can be taken to pay for post-secondary college tuition and related expenses like books & relevant study material.

3. Credit up-to $2500 can be taken for one student in each financial year. So if you are a parent, who is earning and paying for college expenses of 2 kids, then you can take American Opportunity Credit of $2500 for one kid. You cannot claim this credit for both the kids at the same time.

4. You can directly deduct this amount from the amount of taxes you owe. For example if you owe $4000 in federal taxes, then your resulting tax due amount would be $1500.

5. If you are a working individual and enrolled yourself in a part time program; then you can take advantage of this credit for yourself.

6. Single filers who make $90,000 or less and Married couples filing joint returns who make $180,000 or less are eligible to take full credit. If you make more than this amount, then you're not eligible.

What expenses qualifies for this credit:

1. Post secondary college-tuition for credit courses.

2. Related expenses like books, study material and other relevant material related to the program.

What doesn't qualify for this credit:

1. Insurance

2. Medical expenses

3. Room rent and boarding

4. Transportation

5. Non-credit courses (Courses that doesn't count towards the completion of the degree)

                

                                                                                Photo by Liz Ashe from FreeImages

Eligibility:

1. The student or parent shouldn't have utilized this credit for more than 4 years

2. The student shouldn't been convicted of any federal or state felony.

3. The student should remain enrolled for at-least one semester(academic period) in the tax year.

4. The university or college or institution must be accredited by US Department of Education

Who cannot use this credit:

1. Married filing separately.

2. You are listed as a dependent on someone else’s tax return.

3. You or your spouse are or were non-resident aliens for any part of the taxable year.

Calculation:

There are two components towards the calculation of the amount of credit that you can take:

1. 100% on the first $2000 spent on educational expenses.

2. 25% on the second $2000 spent on educational expenses.

Hope this article gave you some information on what on how to take advantage of this credit. Hope you will take advantage of them and will enable yourself or your child to gain some education.

If you want to know more about such credits on your tax return then please comment down below.